The Pros and Cons of Condos as Investments

by Aug 17, 2016

The real estate business is ever changing, and oftentimes what works for some doesn’t work for others. This means that if you ask a room full of investors if investing in condos is a good idea half will say yes, and half will say no. That’s just the way this business is. Ultimately it will be up to you determine if they are the right option for you. Here is a short list of pros and cons to help you get started in your own research on condos and forming an opinion.

THE PROS

Less Expensive

On average, condos and townhomes are less expensive than a lot of single family properties. This may allow you to invest in markets that were out of your price range. Which is great news for you, especially when you consider that unlike with three or four family properties, condos offer the low down payment financing as a single-family property. This will help you stretch your dollar a little farther.

Less Demand

Since so many investors tend to feel condos are not a great investment many will shy away from them. This is good for you because there will be less demand for them, meaning you’ll have a better chance at landing a great investment. Because of this lower demand you’ll be able to pursue properties more actively while still picking and choosing the best ones available. You’ll be much more likely to land the property you want at a price that works for you.

Homeowner’s Associations

You’ll notice that Homeowner’s Associations are listed under both pros and cons, and for good reason. Condos that are within an HOA can be great for first time and older buyers because you won’t have to deal with the traditional everyday hassles of homeownership. With most condos the average grass cutting and snow removal are associated with the monthly association fees, and you’ll typically have access to other amenities as well such as a clubhouse, tennis courts, parking and the pool. These added bonuses alone can make condo ownership much more attractive for many buyers.

Management

Under some associations renting can prove to be difficult, but if you are in the right complex this can be a very good option for you. Managing this type of rental property can often be much easier than renting a single family home because, as mentioned above, many things are covered by the association. This means you’ll be able save money by self-managing the property instead of hiring a dedicated property manager.

THE CONS

Lower Resale Values

In the real estate business or investing it is not uncommon to look at comparable properties to get a sense of potential property value. This is true for condos as well. You should be looking at comparable sales and current listings as a guide. Unfortunately, oftentimes the comparable properties for condos are in the same complex. This means that if one sells for $200,000 it’s difficult to justify selling yours for $225,000 without large improvements. Keep in mind that even with large improvements a 10-20 percent increase over the next highest sale is hard for buyers to accept. Typically you would be at the mercy of the complex and have to wait for the property to appreciate, which can move very slowly.

HOA Restrictions

Now for the cons side of HOA’s. They can really help to take care of the condo and maintain the property but they come at a price as they’ve got numerous restrictions to deal with. Restrictions like what color you can paint the building, what the deck looks like, if you can fly a flag on the garage and whether or not you are able to rent the unit out to other tenants. These are all things you should research if you’re considering investing in a condo that includes an HOA to be sure you’ll be within the rules and restrictions.

This also means that if you are planning to rehab a condo it will need to be done in stages. First, you will have to contact the head of the HOA and make sure that you understand all of the bylaws. If you are planning to rent, if allowed, you’ll need to go over the numbers and make sure that it works after you factor in the association fees so as to be sure you’ll be comfortable with the net cash flow.

Ultimately, whether you want to invest in a condo is your decision. There are a number of pros as well as cons you should consider. So take the time to do your research and decide on your own what you best option is. You shouldn’t base your decisions solely on the experiences of others. So long as you know what you’re getting into and what you’ll be responsible for it can turn out to be a great investment for you.

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